Here's Why the Slump in Danaher Stock This Week Looks Like a Buying Opportunity
Written by Lee Samaha for The Motley Fool
Management raised full-year guidance, but nearly all of it hinges on an acquisition.
The reduction in full-year sales growth guidance in biotechnology is likely due to shipment lumpiness.
Shareholders in biotechnology, life sciences, and diagnostics solutions company Danaher (NYSE: DHR) have had an interesting week. Their stock crashed early in the week on the release of its second-quarter earnings, only to recover somewhat through the week and start Friday morning having declined 12.1% on the week.
Investors can be forgiven for wondering why the stock declined after the company's second-quarter earnings beat estimates and management raised its full-year earnings per share (EPS) guidance to $8.45-$8.60 from a $8.35-$8.55 previously.
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The answer lies in the fact that $0.07 to $0.08 of the increase in guidance comes from the earlier-than-expected acquisition of the medical technology company Masimo. In addition, Danaher reduced its full-year core sales growth expectations in its highest margin business, biotechnology.
Second Quarter Adjusted Operating Profit Margin
Data source: Company presentations. Table by the author.
It's not a huge change in overall company sales growth expectations. Still, the reduction in growth expectations for the biotechnology could impact full-year profit margin expectations.
The disappointing news in biotechnology came down to consumables sales coming in "below our expectations as a few large shipments for programs at our commercial customers moved out of the quarter. To give you some additional color, this was a shift in shipment timing at a few large commercial drug manufacturers for molecules that were specced into" according to CEO Rainer Blair on the earnings call.
Analysts were quick to ask why the shipments wouldn't simply move to the third and fourth quarters, with Blair outlining that a few chromatography resin shipments had moved out of the year.
There's a good reason to believe the shipments will proceed, as shipments can be lumpy in biotechnology. The sell-off appears to be a significant overreaction to an otherwise positive report. If you like the stock long-term, then it could be a good time to pick some up.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Danaher. The Motley Fool has a disclosure policy.